George Osborne to abolish coalition's green tax target as customers face
paying £1.5billion more through their bills to subsidise wind farms, solar
panels and biomas plants

The cost of subsidising new wind farms is spiralling out of control, government sources have privately warned.

Officials admitted that so-called “green” energy schemes will require a staggering £9 billion a year in subsidies - paid for by customers - by 2020. This is £1.5 billion more than the maximum limit the coalition had originally planned.

Tory ministers are said to be "angry" at the scale of the over-running costs. They are blaming the Liberal Democrats who ran the Department for Energy and Climate Change for the past five years for the spectacular failure to control renewable energy programmes.

The huge excess spending is thought to be a result of higher-than-expected numbers of rooftop solar panels being fitted on houses, falling wholesale energy prices, and offshore wind farms proving more productive than anticipated.

The Chancellor believes the figures demonstrate the need to rein in the cost of policies to tackle climate change.

As a first step, he will use this week’s summer Budget to announce that he is abandoning targets set under the coalition to increase the level of environmental taxes in a move he hopes will save customers and businesses billions of pounds.

The Chancellor’s action forms part of a package of measures to boost economic growth and cut the deficit, in the first Conservative-only Budget since 1996, when Kenneth Clarke was Chancellor in John Major’s government.

Other plans expected in the Budget include:

• Measures to force middle-class council house tenants to “pay to stay” in their homes rather than rely on taxpayer hand-outs. Rent subsidies for social housing tenants will be removed from anyone earning more than £30,000 outside London and £40,000 in the capital. They will have to pay full market rents or move out, under the plan. • Details of deep public spending cuts that will be needed over the next three years in order to balance the Budget and run a surplus. Ministers expect the cuts to see one in four civil service jobs – up to 100,000 in total - lost over the next five years. • Cuts to benefit payments totalling £12 billion, with the tax credits regime introduced by Gordon Brown likely to bear the brunt. • Inheritance tax breaks to protect family homes worth up to £1 million, and income tax cuts to help the low paid and middle-classes.

This Budget will be Mr Osborne’s first opportunity to exercise complete control over setting environmental tax rates, and subsidies for wind and solar power, without being constrained by Liberal Democrats.

Under the coalition, ministers decided that investment in new renewable energy developments, such as wind turbines, solar panels and biomass schemes, would be paid for by energy companies, rather than through taxation.

In order to limit the impact of the green schemes on customers, ministers set a strict cap on the total amount that could be spent in these consumer-funded subsidies for renewable energy.

By 2020, the maximum amount to be spent through these subsidies was set at £7.6 billion a year. But new projections from DECC show this cap will be exceeded by a massive 20 per cent, or another £1.5 billion.

Official figures showed that environmental levies added £68 to the average household bill last year. By 2020 this had been expected to rise to £141. But the latest DECC figures suggest the true figure will be closer to £170 as costs continue to mount.

One million people are living in homes with solar panels on the roof

Government sources say there is little that Mr Osborne can do because the subsidies have already been agreed under long-term contracts signed by DECC while Liberal Democrat ministers were in charge.

However, the Chancellor will review the system to see whether further steps can be taken to cut the cost of climate change schemes such as the subsidies, sources said.

In previous years the Chancellor has tried to help businesses cope with punitive environment policies in Britain and across Europe by providing tax relief. He has warned that forcing steel mills and aluminium smelters to shut down and relocate outside Britain will not help “save the planet”.

However, in coalition, DECC was run for five years by Liberal Democrat ministers, firstly Chris Huhne, and then Ed Davey, while Nick Clegg, the party leader was passionately committed to protecting the environment.

In Wednesday’s Budget Mr Osborne will abandon the coalition’s target to increase the proportion of taxation raised from key environmental taxes, such as the Carbon Price Floor, charged on fossil fuels, and the Climate Change Levy, which businesses pay on their energy use.

Landfill tax, which applies to business that dump waste in landfill, and the aggregates levy, a tax on sand, gravel and rock that has been dug, dredged or imported, also fell under the target.

George Osborne, the Chancellor, will give his first Tory Budget this week

Cabinet sources said Wednesday's post-election Budget would contain “bold and big” decisions on deep cuts to state spending, as the Chancellor seeks to boost growth and eradicate the deficit.

Whitehall sources indicated that it would be politically easier for Mr Osborne to make fundamental changes at the start of the new Parliament than closer to the 2020 election, paving the way for sweeping spending cuts over the next two years.

However, the Budget is not expected to be a one-sided story of financial pain. The Tories will seek to make good on David Cameron’s new slogan that he wants Britain to become a “high wage, low tax, low welfare” country, with promises of tax cuts to come.

Mr Osborne will outline his plan to cut taxes by raising the personal income allowance to £12,500 by 2020 and the threshold at which people start to pay the 40p higher rate to £50,000.There is speculation that he could abolish the top rate of 45p entirely.

A senior government source said: “It is not just about cuts. It has also got to be about rewarding those people who want to work hard and get on.

“Out of necessity, we have got to make cuts. This is the budget at which we set the direction for the whole Parliament, in the same way that we did after the last election. The consequences of that are big."

The Treasury will need to find the funding to meet promises to spend an extra £8 billion a year on the NHS, while making savings from welfare and Whitehall. This will inevitably lead to "big and bold decisions", a senior government source said.

Among the 12 billion of welfare cuts will be restrictions on social housing.

Famously, the late leader of the RMT union, Bob Crow, lived in a council house despite earning £145,000 a year. The former Labour Health Secretary, Frank Dobson, has also been criticised for living in a council home.

From 2017/18 tenants on incomes above £40,000 in London and £30,000 in the rest of England living in housing association and local authority properties will be charged a market or “near market” rent.

The move will build further on the steps taken over the last five years that enabled housing associations and local authorities to charge market rents to those on incomes of more than £60,000.

Government sources say over 40,000 social housing tenants have household incomes of £50,000 per year, while 300,000 have incomes of more than £30,000.

The additional rental income that local authorities receive from ending these taxpayer-funded subsidies will be returned to the Exchequer and used to reduce national debt.

Introducing the “Pay to Stay” scheme is expected to bring in up to £250 million per year while also generating extra income for Housing Associations to reinvest in affordable homes

What will be in George Osborne's first Tory Budget?

• Cheap rents – council house tenants will be denied taxpayer subsidised rents if they earn more than £30,000 outside London or £40,000 in the capital. They will have to pay the full market rent in order to stay in their homes under plans to raise an extra £250 million a year• Housing benefit – the under-25s are expected to lose housing benefit as part of plans to cut £12 billion from the state welfare bill.• Child tax credits – payments are likely to be limited to the first two children in a family, as ministers try to cut taxes while also cutting state hand-outs• Inheritance tax – parents will be able to downsize their properties without losing the ability to pass on the value of their homes to their children. The Chancellor will raise the inheritance tax threshold to protect the family home to £1 million. • The deficit – Mr Osborne will set out how public spending will be cut in order to balance the budget and run a surplus by 2019, as he warns more austerity is needed to prevent Britain ending up like Greece. • Income tax – low earners on the minimum wage will pay no income tax by the end of the parliament while the threshold at which people start paying the 40p higher rate will rise from £42,000 to £50,000.